How Yes Bank Became No Bank: A Tale Of Financial Failure In 5 Points

The crisis at Yes Bank has exploded, finally! The moratorium placed by the Reserve Bank of India is akin to the volcanic eruption that has shaken the core of India’s financial sector. As the Yes Bank customers frantically tried to withdraw cash or transact funds online, the experts say that this was waiting to happen. No, the Yes Bank crisis is not an overnight disaster. It’s not an accident that took place while everyone was sleeping. It’s like people had kept an eye open to see when will the volcano erupt only to pray for a delay. The fourth largest private bank in India, Yes Bank is the latest crisis that will further deteriorate the slowing economy and hit market sentiments. So, what went wrong? How a bank that showed 11.6 per cent growth in balance sheet is struggling to survive? Why did the RBI wait this long? Who is responsible for the Yes Bank collapse. The jury is still out! But there are tell-tale signs that show how Yes Bank became ‘No Bank’!

These 5 points will unravel the mystery for you:

1. Founded by Rana Kapoor and Ashok Kapur in 2004, Yes Bank was conceived as ‘Full Service Commercial Bank’. Over the years, the bank became darling of both the corporate and retail customers. In 2015, it was honoured with ‘Bank of the Year’, India award in London. Same year, it was recognised as ‘strongest bank in India’. It became the only Indian bank to be included in the prestigious Dow Jones Sustainability Index. In 2013, Moody’s awarded grade rating of BAA3. It was also regarded as ‘best employee’ in 2013. With such awards and accolades, Yes Bank was on a dream run. The bank saw exponential growth in terms of both capital and trust in the market.
2. But somewhere along the lines, the bank started giving loans to companies that impacted its health. A headache of NPA turned into migraine which finally eroded the funds of the bank. Quoting Credit Suisse Group AG, a Bloomberg report highlighted that some of the borrowers of Yes Bank included the likes of IL&FS, Anil Ambani group companies, Essel Group and Dewan Housing.
3. The poor decision of lending to corporate entities with poor financial health, Yes Bank also had internal issue of sloppy governance. Much before the Reserve Bank of India came into picture, there were reports about misrepresenting the NPA crisis in the balance sheet. According to a report by the moneycontrol.com, Yes Bank reported Rs 3,277 crore in bad loans and just Rs 978 crore under NPA. Essentially, the numbers didn’t add up. The mandated ratios went for a toss and it became clear that it was matter of ‘when’ will Yes Bank fail?
4. The biggest question in the crisis is about who is responsible for Yes Bank crisis? Many are of view that it is the Reserve Bank of India. After all, R Gandhi was on Yes Bank board as early as May, 2019. There was a whistle-blower also. He too had pointed to poor practices. The fragility of Yes Bank’s financial health was out in open and yet it seems that no one, neither the government nor any other regulatory body acted on time. No lesson was learnt from the PMC crisis!
5. The Indian economy has bottomed out. The NPA-hit banking sector needs a bailout, which is likely to be provided by the State Bank of India. Previous rescue plans involved the LIC also! So, the big query remains – will the private banking revolution, which began during the wave of liberalization in early 1990s, survive the dual demons of NPAs and economic slowdown?